Ethical issues in Accounting and Finance

Accounting and finance provides fair and accurate reporting of the financial position of a business. The major ethical issues occur in accounting and finance are reporting false income, falsifying documents, allowing or taking questionable deductions, illegally evading income taxes, engaging in frauds etc.

Fraud in financial statements can be committed in 5 ways:

Fictitious revenue-revenues not actually earned

Fraudulent Timing differences

Concealed liabilities and expenses

Fraudulent disclosures or Omissions

Fraudulent asset valuation-false statement of the inventory available

The Ethical Audit

Main purpose of ethical audit is to check the actions of a firm. The main objectives of ethical audit are:

Assess the business structure and procedures, systems and policies

Whether business activities comply with the standards

To identify the way in which it does business

Evaluate whether management has relevant information in running the business

To help business undergo major alterations like restructuring

To identify the training necessary for the employees

Establishing ethical conduct of business to attract valuable investments

Establish code of conduct

Helps the shareholders to evaluate the performance of the directors and vice versa

Steps to be taken by the management for true, fair and reliable mgmt accounts:

Determining the key elements of the business like the objectives and see how they are defined and measured

Making sure that the funds are allocated to different activities on the basis of their importance